Can Transatlantic Relations Be Open and Balanced?

Mr. Marwan Lahoud
President and CEO,
MBDA Missile Systems

Global security will achieve a lasting foundation only if we manage to establish an open and balanced transatlantic relationship. I will talk about how to do that from an industry point of view. It was said earlier, and I agree, that other players such as China are getting stronger and stronger. This implies that the European Security and Defense Policy must contribute to global security in a united and credible way. To do this we must do three things: Transform European industry, understand the differences between defense industry business models on the two sides of the Atlantic, and understand the obstacles and impediments to achieving not just a transatlantic relationship for industry but to consolidating and transforming European industry.

TRANSFORMING EUROPEAN INDUSTRY

In Europe, there have been two main phases of industry transformation: One that started in the late 1960s and lasted until the mid-1990s, and was mainly based on small joint programs between European nations or between European nations and the U.S.; and one that followed this successful period starting in the mid-1990s, when the geostrategic field changed and became bigger and military spending was reduced. Hard as it is to remember, we have now been living through 10 years of industry transformation, which for companies is ages.

The radical change in the 1990s led to mergers between European players both outside borders as well as within. Those that I had the opportunity to be involved in were the creation of Aerospatiale Matra, EADS, and the company I am running now, MBDA, which is a three-billion-dollar world player that was created by merging six different entities that existed in Europe.

Such restructuring was inevitable, and it has delivered results. What was expected in terms of synergies, efficiency improvement, and growth can now be seen. And, as Patrick Auroy said, this industry transformation is far from complete. Important areas, including naval systems, still have to be restructured. So we need to take care of this second layer—transformation is an ongoing, permanent situation, and we need to move on to the next step. That step is going beyond what has already been achieved in the areas of structure and streamlining, and making sure that we lift the remaining obstacles, sociological, technical, and legal. We must continue our efforts if we want to prevent European defense production from becoming just pointless labor.

As far as building transatlantic partnerships goes, several successful cooperative programs are already in place, most of which my company is involved in, including MEADS and GMLRS. There have been some failures, however, including the ASRAAM/AMRAAM initiative that began in the 1980s between the U.K. and the United States, and there are still not enough successful cooperative programs for taking the next step. If that is to happen, we must explore, develop, and promote all cooperative opportunities and remove all the obstacles, which I’ll talk about later.

COMPARING DEFENSE INDUSTRY BUSINESS MODELS

We could comment at length about the difference in defense spending between the U.S. and Europe; we could ask how the U.S. manages to spare enough of its budget to spend on defense; we could ask where the money comes from, and we could compare the budget policies of European countries and the U.S. but it would all be pointless. It is a fact that while 3.7% of the GDP is spent on defense on one side, around 1%, depending on how we consolidate, is spent on defense on the other side. Therefore, if we want to be a successful defense industry, and we have been successful up to now, we must rely on different streams of revenues, which are related to export. Export is a U.S. policy tool and it is in Europe as well, but it is also a necessity for the sustainability of the European defense industry business model. This is not an easy matter. As an industry representative, as the chief executive of a company, I am fully aware of the responsibilities I have and of the gravity of the statements I am making. But we must take into account the fact that export is a key component of our business model as well as make sure that control systems are enforced everywhere. Every hole in a control system takes away from the credibility of the entire system.

OVERCOMING OBSTACLES

There are three possible obstacles to transatlantic cooperation. The first is the transformation of the demand side of the market. From an industry point of view I would say that we are expecting transformation soon and that it will go in the right direction if it happens quickly enough to match our timetables.

The second area is what I would call the legal framework within which companies operate in Europe compared to how they operate in the United States. A European defense company remains a national company on a day-to-day basis and it can be difficult for U.S. executives who come to Europe to discuss cooperation within our day-to-day life. For example, each time I fly to London I have to file to run my company in London. My colleagues from Italy have to file each time they are called to a management meeting in France. European defense companies must harmonize the rules as well as the framework within which they can operate. We urgently ask that LoI principles be transformed into regulations.

The third area is exports. As industry people we are fully aware of the importance of the control system and contribute to it. It is part of our company ethics and part of our role as companies to contribute to the enforcement of the technology transfer rules. However, we need to be able to circulate technologies and skills inside those nations in which we operate. We understand that it is important to prevent transferring technologies to third parties, but we need to have free circulation of technologies and goods inside those countries in which we are authorized to operate. I am talking for MBDA about the European Union and our U.S. operations in California.

I believe that all three obstacles to transatlantic cooperation can be lifted and taken away. We are putting a lot of hope in the development of the European Defense Agency and are looking forward to establishing a transatlantic partnership. This is the only way to achieve global security.